Small businesses bear the brunt of HMRC crackdown on tax evasion as sum raked in jumps 31%

The taxman raked in £565million during the past year from small businesses caught out by compliance rules - a 31 per cent hike from the previous 12 months.

A tougher stance on tax evasion has been implemented nationwide, resulting in HMRC turning up the heat on start-ups and small firms. But accountancy firm UHY Hacker Young said that SMEs are bearing the brunt of the much-publicised crackdown on international giants like Google and Starbucks.

During the most recent financial year, small businesses caught out for flouting rules have paid £565million, up from £434m in 2011 to 2012.

Bearing the brunt: Small businesses have come under extra scrutiny from HMRC

Roy Maugham, tax partner at UHY Hacker Young, said: 'Small businesses are bearing the brunt of HMRC’s tougher approach to tax investigations. With an ambitious target set by the Chancellor to bring in billions of pounds through additional compliance, HMRC is desperate to squeeze as much money as they can from businesses who may owe tax.

'With far smaller budgets than larger businesses, SMEs are often less likely to have accountants to manage their finances, making them prone to mistakes when filling in returns and therefore an easy target for HMRC.

'That also means they are in a weaker position to negotiate over allegation of underpaid tax than a big corporate.'

In the 2010 Spending Review, Chancellor of the Exchequer George Osborne set a target to net an extra £7bn a year in
additional tax revenues from compliance activity. As a result, HMRC has launched 40 specialist taskforces aimed
at extensive investigation into businesses and individuals.

However, HMRC denys it is singling out small businesses because they are an easier target. It puts the increase in tax revenue down to improved IT facilities that can target all those falling foul of laws, resulted in an increase in charges across the board.

An HMRC spokesman said: 'Taskforces target suspected evasion
but across broad sectors, which have included wealthy individuals and
large businesses. They don't have anything to do with SMEs, so that
reference is a red herring.

'Of the UK's 4million small enterprises, the overwhelming majority pay the right tax
at the right time. We recognise the crucial role SMEs play in creating
growth and contributing to the UK's economy, which is why we work hard
to help them to get their tax right from the outset.

'We provide tailored help for
businesses that want it while tackling the minority who attempt to cheat
so that no-one gets an unfair business advantage by breaking the tax
rules.'

Since 2010, HMRC has launched 40
specialist taskforces which conduct intensive bursts of compliance activity in
specific, high-risk sectors or locations where there is evidence of tax
evasion. Previous crackdowns include fast food outlets
in Scotland, landlords in the North West and property transactions in
Greater London.

Caught out: A clampdown on tax compliance resulted in a 31% rise in small business tax revenue

Taskforces often involve working closely with other
government departments, pooling knowledge and expertise.

The scheme has raised more than £60million
in additional revenue already, with one taskforce focused on the fast
food industry raking in £25million, according to UHY Hacker Young.

HMRC confirmed: 'We launched 12 taskforces in 2011-12
which have recovered more than £55million to date and are expected to
bring in over £70 million in total. We launched a further 28 taskforces
in 2012-13 and we will launch up to 30 more in 2013-14 and 2014-15.'

As a result, UHY Hacker Young says it has been inundated with queries from small businesses that have ended up with large tax bills.

Maugham said: 'While
the tax affairs of large corporations such as Starbucks and Amazon have
been publicised heavily, HMRC’s crackdown on SMEs has not attracted as
much attention.

'It is
important for SMEs to be aware of the risks they face if their tax
affairs are not in order, because SMEs are increasingly on HMRC’s radar –
as the ever-growing yield from these investigations proves.'

KNOW YOUR TAX OBLIGATIONS: HOW TO AVOID FALLING FOUL OF TAX LAWS

HMRC has released the following top tips for small businesses:

Keep proper books and records which accurately show all business transactions.

Include all income from the business including cash and card receipts.

Claim all reasonable business expenses but don't claim for private expenses which don't relate to the business.

Check your tax return carefully before you submit it - never send in a return which you know is inaccurate.